Indeed, the federal government just announced a surprise $6.5 billion shortfall for the first two months of the fiscal year. This announcement has further fueled fears about the nation’s fiscal condition. This report originally appeared and was updated on July 25, 2025. It underscores the inherent difficulty the federal government continues to have in balancing revenues and spending.
During this same time, the federal government experienced a $26 million increase in revenues. This number was almost completely flat compared to this time last year. A number of factors played a role in this weak revenue expansion. Customs import duties increased, and proceeds from the pollution price will be recycled back to individual Canadians. Even with these increases, revenues gained from corporate income and goods and services taxes were down.
Comparison to Previous Fiscal Year
This came as the federal government recorded a deficit of $3.8 billion in their May-to-April fiscal period in 2024. This is a major turn around to the deficit seen last year. This signals a dramatic deterioration of the federal government’s fiscal state, as it continues to struggle with volatile revenues and increasing outlays.
The stagnation in revenue growth creates a new bind for policymakers. Striking this balance is important, but the government faces pressure to adopt strategies that will drive greater economic growth in a fiscally-responsible manner.
Rising Public Debt Charges
Of special concern, public debt charges rose by $400 million or 3.8 percent. The change in the outstanding stock of marketable bonds is what’s pushing up this increase. Consequently, the federal government’s liabilities are soaring. To add fuel to the fire, more CPI adjustments on real return bonds have been feeding this public debt charge increase.
The sharp rise in public debt charges begs the question of whether current fiscal policy is sustainable. The federal government is increasingly using tax dollars to finance its own borrowing costs. Consequently, the state oftentimes can’t afford to invest in critical areas such as infrastructure, healthcare and education.
Actuarial Losses and Fiscal Outlook
Looking at the bright side, the net actuarial losses for the federal government decreased by $600 million. This decline is even more impressive, constituting a stunning 46.8 percent decrease. This decrease is welcome news as public debt charges keep increasing. That doesn’t remove the need for continued fiscal stress we’re all temporary fix.
The federal government’s fiscal position will require vigilance and action to avoid placing an undue burden on future generations. As officials analyze the current data and trends, they will need to consider strategies that balance revenue generation with responsible spending.
